LLQP Life Insurance · Component 1.3 · 35% of the exam
A company wants coverage on a shareholder who is also its most productive employee. The analysis should recognize that:
- Athe buy-sell need disappears where the key person is also a shareholder of the company
- Bonly one of the two needs may be insured, since a single life cannot support two policies
- the key person loss and the share purchase are separate needs requiring separate amounts
- Done policy automatically serves both the key person and the buy-sell purposes
Correct answer: C) the key person loss and the share purchase are separate needs requiring separate amounts
Replacing lost profit and recruiting a successor is one need; funding the purchase of the shares is another. Combining them in one amount, or one ownership structure, usually leaves one purpose underfunded.
Why the other options are wrong
- ABeing an employee does not remove the need to buy the shares.
- BSeveral policies may insure the same life for different purposes.
- DThe two purposes have different amounts and often different owners.
Exam tip
Key person and buy-sell are two needs, two amounts and often two structures.
Common mistake
Using one policy to serve both the key person and the buy-sell purpose.
What this tests
CISRO competency component 1.3 — Assess the client's needs and situation — which is weighted at 35% of the Life Insurance module. Written against the published curriculum.
More from component 1
- A client's existing policies were all sold by another agent who has left the business. The reviewing agent should:
- A client supports an adult child with a permanent disability who will never be self-sufficient. In the needs analysis this is:
- A self-employed client's income fluctuates widely year to year. When determining the income to replace, the agent should:
- A 58-year-old client plans to retire at 65 and has a pension that will pay a survivor benefit. How does time to retirement affect the life insurance need?
- Which of the following is a capital expense arising at death, rather than an ongoing income need?
- A client is the sole income earner in a household with a stay-at-home spouse and two young children. The greatest risk that life insurance on the client addresses is:
Practice the whole Life Insurance module
Timed sets weighted like the exam, and review of every question you miss. Free to start.